Ocado still loss making as it begins platform roll-out

Internet retailing technology provider Ocado plc increased its losses over the past year, driven by the burning down of one of its warehouses and the slowness of revenue from its global technology outsourcing operations to show up in the accounts.

Much of the underlying picture was promising. Revenue for the whole business was up 9.9% at £1,756.6m (US$2.2bn) but EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) fell by 27.2% to £43.3m ($56m). The impact from ‘exceptional items’- notably the warehouse fire- trebled the company’s losses before tax at £120.4m.

The original grocery retail business in Britain is continuing to gain market-share with Retail segment revenue increasing by 10.3%, but profits were depressed in part by the indirect effects of the warehouse fire, knocking around a third off the segment’s EBITDA at £1.3m.

The logistics technology business seems to be slower in delivering results. The contracts with Sobeys in Canada, Casino in France and a string of others are not yet delivering. In fact, they are a drag on profits, with the ‘International Solutions’ business increasing its negative EBITDA from £28.4m ($37m) in 2018 to £62.1m ($80.8m) in 2019. However, Ocado said that they had a “cumulative unrecognised cash fees” of £140m ($182.4m) by the end of 2019. A string of fulfilment centres are scheduled to be opened by Ocado and its partners across continental Europe and North America in 2020, so presumably, this number may climb substantially. The accounts appear to suggest this might be a number in excess of £1bn.

In contrast, the relationship with Marks and Spencer in the UK has been much quicker to affect the bottom line, with Ocado already having been paid £562.5 million by Marks and Spencer.  

The next year will be crucial for Ocado. If the introduction of the ‘Ocado Smart Platform’ for its customers is trouble-free and delivers profits the company will be positioned to become one of the world’s most important logistics systems providers and a significant rival to Amazon. However, Ocado is not there yet.

Source: Transport Intelligence, February 13, 2020

Author: Thomas Cullen